Interest rates are unlikely to fall until late this year, the Central Bank has indicated

Governor Mr Maurice O'Connell said the Bank is anxious to ensure a "soft landing" for the economy and has warned again that interest rates will not be coming down soon.

The bank remains concerned that rapid economic growth will spill over to higher inflation and it has increased its forecast for Gross National Product growth this year to 7.5 per cent, from 6.5 per cent previously.

Speaking at the presentation of the Bank's annual report Mr O'Connell insisted that he "cannot quantify or give a time-scale" for the rate cuts. But nevertheless he added that "it is undeniable that lower rates are not our preference. We are making haste slowly." According to Mr O'Connell, it is also possible that interest rates will have to rise on the continent. This would mean a less sharp fall for Irish rates which will have to be at German levels by the end of the year.

Some analysts have argued that a series of large cuts over a short period of time could risk fuelling inflation. But director general Mr Padraig McGowan said that if rates come down quickly over a short space of time there is less time for the rate cuts to have an impact.

He added that the Irish Central Bank has a preference for average interest rates across Europe to be used for the new currency - rather than all rates converging at current low German levels - and that the option is still open. However, in recent months a variety of Bundesbank officials have come out saying that the preference will be for rates to converge close to current German levels of 3.3 per cent, rather than taking higher rates in Spain, Finland and Ireland into account.

The Bank has also increased its growth forecasts for the economy this year and has warned that inflation remains a danger. It is keeping to its inflation prediction at 2.75 per cent for this year, despite the pick-up in April, which Mr O'Connell said was "surprising and disappointing".

The report also warned that taxes will have to rise or spending cut somewhat to curb excess demand. But it added that this does not have to prejudice the Government's commitments to tax cuts over the medium term.

The Bank is expecting gross national product to grow at some 7.5 per cent this year, compared to 8.5 per cent to 9 per cent last year.

But it said that the economy must soon revert to a more sustainable 5 per cent a year growth. It also warned that people may have dangerous or "excessive" expectations of their future income, giving rise to an unsustainable growth in consumption in the short term. Mr O'Connell also insisted that no decision has yet been taken on what to do with the Bank's extra reserves once we move to monetary union. Free reserves now stand at about £1.5 billion and it will probably contribute between £350 million and £450 million to the new European Central Bank.

The Central Bank is concerned about mortgage lending practices and has written again to all lenders, questioning their practices. "The bottom line is the protection of depositors," according to governor Mr Maurice O'Connell. "Traditionally do not go into branches but we are doing spot checks at the moment on mortgages."

Assistant director general, Mr Garrett Murphy said the Bank is not prescribing the lending limits but only monitoring.